Measuring Local Poverty Rates

A family with 20,000 dollars in annual earnings can obviously afford far more in Buffalo than in Boston, but economists have still hardly agreed on how to adjust local poverty measurements for local prices of living. A simple procedure might be to just use local price of living indices, but there are at least two reasons why such an adjustment could be highly problematic. First, these price adjustments are based on commodities consumed by the average person and these prices might have little in common with the prices paid for commodities consumed by the poorest Americans. Second, higher prices in some areas might themselves by a reflection of other area amenities—including economic opportunity. Correcting for high prices might therefore lead to an underestimate of the welfare levels in high cost areas.